Banks should increase lending to agriculture
The Central Bank’s health check into the financial system has given local banks a clean bill of health. The banks saw their deposits raise significantly recently, which may suggest they are now able to attract more savings from the public.
Their consolidated assets grew by 2.9 per cent to Rwf1.2 trillion in first quarter of this year, thanks to the National Bank of Rwanda’s implementation of new regulations, which subsequently improved the banks’ supervision.
While the World economy is still fragile with prevailing signs of financial stress, particularly in the Euro zone, the central bank’s analysis of the local financial system suggests that local banks are more stable and resilient to external shocks.
They are well capitalised, posting health growth rates on the basis of profits and they also managed to trim the level of non-performing loans.
However, amidst this impressive progress, which has also seen banks increase their lending to the economy, the agriculture sector remains underserved by banks.
In the first quarter of this year, outstanding credit to agriculture was a paltry Rwf9.1 billion compared to manufacturing, mortgage industry, commercial and hotels which received Rwf25.5b, Rwf47.6b and Rwf88.8b respectively. Yet agriculture employs, by far, the majority of Rwanda’s workforce.
Most banks don’t want to lend to farmers because the sector is considered high risk area.
On the contrary, farmers have made significant headway in the recent past. A good number of them have since streamlined their businesses, with many of them working together in cooperatives, which have a steady income flow.
In addition, they now have land titles which can act as collateral thanks to recent land reforms. Although this does not make the farmers risk free, it should be a good enough reason to encourage lending. The onus is on banks to change their perception about agriculture, which still has immense potential.